December 30, 2004

The Equal Opportunities Commission laments the shortage of women in “top jobs.” It reports that women account for only: 9.7 per cent of directors of FTSE 100 companies; 16.6 per cent of local authority chief executives; 8.3 percent of senior police officers; 9.1 per cent of national newspaper editors; and so on.

This report merely continues a long tradition for pseudo-egalitarians to inadvertently discredit the ideal of equality.

December 23, 2004

How fast did the UK economy grow in the third quarter? Newspaper reports like this say it grew 0.5 per cent.
In one important respect, they are all wrong. In fact, the economy boomed, with real GDP growing by 3.9 per cent in the quarter – an annualized growth rate of 16.7 per cent. It is only after seasonal adjustment that the economy grew by 0.5 per cent.
An inspection of the seasonally unadjusted figures – which are downloadable here – shows that the UK has had a recession every year for the last 40. GDP always falls in the first half of the year. Economic growth only happens in the second half. The economy only grows in the third and fourth quarters.
Even a non-agricultural economy, therefore, is highly seasonal.
This matters. For one thing, it corroborates the view – first rigorously proposed by Robert Lucas in the 1980s – that the welfare costs of recessions are small. After all, the UK has a recession every year, and no-one worries much.
Also, it’s well-known that the stock market is seasonal; the best returns on equities occur in the winter. Isn’t it at least possible that this fact is related to the seasonality of the economy? Maybe winter returns on equities are just a reward for taking economic risks which are masked by seasonal adjustment processes.

There are some very agreeable and beautiful talents of which the possession commands a certain sort of admiration; but of which the exercise for the sake of gain is considered, whether from reason or prejudice, as a sort of public prostitution. The pecuniary recompense, therefore, of those who exercise them in this manner must be sufficient, not only to pay for the time, labour and expense of acquiring the talents, but for the discredit which attends the employment of them as the means of subsistence. The exorbitant rewards of players, opera-singers, opera-dancers etc, are founded upon these two principles: the rarity and beauty of the talents, and the discredit of employing them in this manner.

December 22, 2004

David Hume was an anarchist (sort of). In A Treatise of Human Nature (1740), he wrote:

Though government be an invention very advantageous, and even in some circumstances absolutely necessary to mankind; it is not necessary in all circumstances, nor is it impossible for men to preserve society for some time, without having recourse to such an invention.

To Hume, government was unnecessary when people’s property was secure. And this was the case when there was significant equality or community spirit. Hume continued:

A Indian is but little tempted to dispossess another of his hut, or to steal his bow, as being already provided of the same advantages; and as to any superior fortune, which may attend one above another in hunting and fishing, ‘tis only casual and temporary, and will have but small tendency to disturb society…I assert the first rudiments of government to arise from quarrels, not among men of the same society, but among those of different societies.

I take two things from this. First, we associate the idea of the withering away of the state under conditions of equality with Marx. But wasn’t he just turning Hume on his head, by projecting Hume’s version of history into the future?

Second, shouldn’t we regard equality as a necessary condition for limited government, rather than as a consequence of big government?

December 21, 2004

Thomas Malthus was well aware of the Easterlin paradox, whereby economic growth doesn’t make us happier. In his Essay on the Principle of Population, written in 1798, he complained that Adam Smith:

Has not stopped to take notice of those instances where the wealth of a society may increase…without having any tendency to increase the comforts of the labouring part of it.

How can this happen? The answer we associate with Malthus is of course that the labour supply rises as demand for labour rises, thus keeping workers at the subsistence level. But this is not the whole story. Economic growth involves the transfer of workers from agriculture into manufacturing:

And this exchange of professions will be allowed, I think, by all, to be very unfavourable in respect of health, one essential ingredient of happiness, beside the greater uncertainty of manufacturing labour, arising from the capricious taste of man, the accidents of war, and other causes.

What’s more, greater prosperity would lead to a regression in culture and intellect:

From all that experience has taught us concerning the structure of the human mind, if those stimulants to exertion which arise from the wants of the body were removed from the mass of mankind, we have much more reason to think that they would be sunk to the level of brutes…than that they would be raised to the rank of philosophers by the possession of leisure…The general tendency of a uniform course of prosperity is rather to degrade than exalt the character.

December 20, 2004

It is to be lamented that the duty by stamps, with which the transfer of landed property is loaded, materially impedes the conveyance of it into those hands where it would probably be made most productive.

This could be very right. Andrew Oswald has pointed out a close correlation across countries between Nairus and home ownership rates. These guys have delved further into the link. But these are more sceptical.

December 19, 2004

Here’s an interesting flaw in human capital theory – the labour market position of people with Asperger’s syndrome. Many of these have high intelligence and great technical skills. They should therefore earn good money.
They don’t. This report from the National Autistic Society shows that only 12 per cent of people with Asperger’s are in employment at all.
This is hard to reconcile with human capital theory. It’s also hard to reconcile with the most interesting alternative to this theory – the notion of incentive-enhancing preferences, as described by Herbert Gintis and Sam Bowles.
Employers, they say, value a university education not so much for the skills it directly creates as for the attributes correlated with it. Graduates are more likely to be self-reliant, trustworthy and have “a good attitude.” And it is this that employers want.
Bowles and Gintis’ theory is slightly different from the better known credentialism, because they allow for the possibility that a university education can cultivate attributes employers want, rather than merely signal them.
However, although their theory can explain one interesting fact that neither human capital not credentialism can explain – the low earnings of mature students – it can’t explain the poor labour market conditions of people with Asperger’s, as these are typically enormously trustworthy and self-reliant.
So, what’s going on? Could it just be that what employers really want is just “people like us”? Isn’t this just what “good communication skills”, “a team player” and so on are euphemisms for?
Maybe those neoclassical economists who regard the workplace as merely somewhere where inputs are technologically transformed into outputs are missing a big point – that employment is about social control and conformity.
On this point, maybe economists have more to learn from Randle McMurphy than Gary Becker.

One of the first advocates of consumption taxes was Hobbes – Thomas, not Miranda. In Leviathan, written in 1651, he asked:

What reason is there, that he which laboureth much, and sparing the fruits of his labour, consumeth little, should be more charged, than he that liveth idly, getteth little, and spendeth all he gets: seeing the one hath no more protection from the Common-wealth than the other?

What would the taxes be spent on? We associate Hobbes with the notion that the state’s duty, above all else, was to guarantee citizens’ security. But he wanted more than this: “By safety here, is not meant a bare preservation, but also all other contentments of life.”

He went on to advocate that people be educated in law and ethics, and also that there be a welfare state:

And whereas many men, by accident unevitable, become unable to maintain themselves by their labour; they ought not to be left to the charity of private persons; but provided for (as farforth as the necessities of nature require) by the lawes of the Common-wealth. For as it is uncharitablenesse in any man, to neglect the impotent; so it is in the sovereign of a Common-wealth, to expose them to the hazard of such uncertain charity.

This applied to the ill and elderly. The unemployed, however, should be forced to work. And this required an interventionist state to promote economic growth:

And to avoyd the excuse of not finding employment, there ought to be such lawes, as may encourage all manner of arts; as navigation, agriculture, fishing, and all manner of manufacture.

But what if this failed to provide full employment? Here, Hobbes’ link with modernity breaks down:

The multitude of poor, and yet strong people still encreasing, they are to be transplanted into countries not sufficiently inhabited: where, neverthelesse, they are not to exterminate those they find there; but constrain them to inhabit closer together.

But what happens when the world’s land runs out?

And when all the world is overcharged with inhabitants, then the last remedy of all is warre; which provideth for every man, by victory, or death.

My Arnold Kling-type question: at a time when there was little evidence for technical progress, how mistaken was this conclusion?